Lee Bok-hyun, Financial Supervisory Service Chief, "Strengthening Pre- and Post-Audit for Newly Listed Companies"

On the 5th, Lee Bok-hyun, Governor of the Financial Supervisory Service (FSS), announced plans to strengthen pre- and post-accounting supervision for newly listed companies and to swiftly remove companies found to have committed accounting fraud. He also urged domestic accounting firms to enhance objectivity and fairness in external evaluations, such as merger valuations, which directly affect market participants.

Governor Lee made these remarks during a meeting with CEOs of accounting firms held at the Korea Institute of Certified Public Accountants building in Seodaemun-gu, Seoul, on the morning of the same day. He stated, "We plan to steadily pursue the advancement of the capital market in 2025 as well." The meeting was attended by CEOs from nine accounting firms responsible for auditing listed companies in Korea, including Samil Accounting Corporation, Samjong Accounting Corporation, Anjin Accounting Corporation, and Han Young Accounting Corporation.

First, Governor Lee said, "To block companies that inflate their value through fraudulent means, such as hiding a sharp decline in sales during the listing process, we will expand pre-accounting reviews for companies planning initial public offerings (IPOs)." He added, "We will strengthen post-listing reviews and audits for companies whose stock prices fall significantly below the offering price immediately after listing and whose sales and operating performance sharply decline."

He also pointed out, "We will conduct early reviews of the appropriateness of accounting treatments for marginal companies and induce the swift removal of companies found to have committed accounting fraud." He noted that recently, cases of marginal companies being caught for accounting fraud through false or fabricated sales have been increasing. He explained that for companies showing signs of being marginal, proactive reviews and audits will enable their prompt removal.

Governor Lee also urged domestic accounting firms to ensure objectivity and fairness during external evaluations. He said, "External evaluations, such as merger valuations, directly affect market participants and are becoming increasingly important for establishing a fair market order." He requested, "As a group of experts with strong ethical awareness, please maintain an objective and independent perspective to perform fair external evaluation tasks."

Furthermore, to enable companies to voluntarily enhance accounting transparency, the evaluation will include not only the 'level' of governance but also the company's 'efforts to improve,' in relation to the three-year grace period for auditor designation announced at the end of last year. Previously, the FSS announced a plan to defer periodic auditor designation for three years for companies with excellent governance related to accounting and auditing. He emphasized, "We will create an environment where companies themselves strive to improve accounting transparency."

Lastly, Governor Lee stated, "We will encourage a culture within accounting firms that prioritizes audit quality." He added, "We will differentiate the audit cycle for registered accounting firms based on their quality management levels and conduct focused inspections on specific vulnerable areas such as integrated management systems." He further said, "When evaluating the quality management levels of accounting firms, we will provide incentives for strengthening digital audit capabilities to support more efficient and effective audits."

He emphasized, "Accounting is the fundamental infrastructure of the capital market, and accounting firms play a crucial role in providing the reliability of accounting information." He urged, "Despite the high level of internal and external uncertainties, please steadfastly perform your essential roles on the front lines to create an advanced capital market as the 'guardians of the capital market.'"

The CEOs of the attending accounting firms responded that they would do their utmost to ensure external audits to secure trust in the capital market. They also requested that the supervisory authorities continue to communicate steadily with the industry to rationalize unreasonable regulatory burdens and continue institutional improvements. Governor Lee replied that he would actively reflect the suggestions presented that day in future accounting supervision tasks.

This content was produced with the assistance of AI translation services.